The future of small farms

International Food Policy Research Institute

Imperial College

&

Overseas Development Institute

www.ifpri.org/events/seminars/2005/20050626SmallFarms.htm

Questions to be covered

• Why rural development?

• Why agricultural development?

• Why small farms?

• Importance of context

• Policy and research pointers

Why rural development?

• MDG 1: halve poverty by 2015

• 75% of the world’s poor live and work in rural areas will be no less than 60% in 2025

• NB: Rural areas will lose population but will take time

• Some will benefit from transfers from urban economy, but …

• … most of these poor will depend heavily on their own incomes, and from transfers within the rural economy

Why agricultural development?

Two arguments:

(1) Agriculture can sustain livelihoods of many; by growing it can reduce poverty:

• Theory: • Farming can employ much labour, little capital

• Generates returns to land, an asset that some poor have

• Agricultural growth pushes down food prices

• History — few if any countries have industrialised without an agricultural revolution

• Recent analyses:

• A 10% rise in farm yields → 7% fall in poverty [Irz et al. 2001]

• In Africa, through farm incomes, in South Asia through farm wages, in Latin America, through jobs in food chains [de Janvry & Sadoulet 2002]

Case for agricultural development (2)

(2) What’s the alternative in rural areas?

• Agriculture can be difficult, with growth rates that

struggle to beat 5% a year; while manufacturing

industry can expand at twice that rate

• But mining, tourism, rural manufacturing all

have limited possibilities

Average real wholesale prices rice & wheat, 1980–2000,

Bangladesh [IFPRI]

Why small farms?

Clarifications

Note debates may be:

• SF Kenya versus LF Brazil

• SF Kenya versus LF Kenya

Small farms: how small? India classifies :

• The prospects for SF (and semi-medium) are

much better than those for marginal farms

The case for small farms

• Efficiency: SF use land

more intensively

inverse ratio of farm size:

yield/ha

• … and this may explain

why farm sizes fall in the

developing world

• Equity labour use,

strong consumption links

to local economy

T-cost advantages SF LF

Labour supervision X

Local knowledge X

Self-provisioning X

Knowledge of markets &

technology

X

Access to inputs, credit,

markets

X

Quality assurance X

Risk management X

India: farm sizes

DESRIPTION SIZE AVERAGE

SIZE HA

% OF Total

HOLDINGS

% OF

AREA

% OF

IRRIGATED

AREA

MARGINAL FARMS <1 ha O.4 62 17 21

SMALL FARMS 1-2 ha 1.42 19 19 20

SEMI-MEDIUM 2-4 ha 2.73 12 24 24

MEDIUM 4-10 ha 5.84 6 25 24

LARGE >10 ha 17.2 1 15 11

ALL FARMS 1.41 100 100

Brazil & India: farm size & yield/area

India: Farm size and output per unit area

0

100

200

300

400

500

600

700

800

0–5 5–15 15–25 > 25

Acres

Ru

pees/a

cre

Brazil: Farm size and output per unit area

0

10

20

30

40

50

60

70

80

90

100

0–9.9 10–49.9 50–99.9 100–199.9 200–499.9 > 500

Hectares

US

$/h

a

Farms sizes fall in developing countries

Do small farms have a future?

• The share of both holdings and cropped area accounted for by small farms continues to rise in most developing countries.

Small farms are not about to disappear!

• Is this rising share of small farms indicative of:

• their superior ―efficiency‖

• market imperfections (especially for land)

• social, insurance or other values attached to land?

• Can increasingly small farms still act as a ―driver‖ for growth and poverty reduction?

The changing world for small farms

This is not mid-1960s Asia!

• Lower international commodity prices

• Environmental limits to intensification

• Exhausted easy options in crop technology

• HIV/AIDS

• Climate change

• GR context of closed domestic markets & heavy subsidies now unthinkable in many developing countries

These affect all farms in given countries / regions, but may be differential impacts across regions

• Concentration in supply chains

Concentration in supply chains

• Key point: to keep down T-costs, buyers favour a

few large suppliers

• Different contexts

• Two key questions:

• How fast is concentration?

• If this responds to economic growth, then impact on SF/MF

is much mitigated

• Ability of SF to organise and meet new demands

High LowDemand for Output from Small Farms

Inequality in Farm

Structure

High

(Dualistic)

Low

(Mainly small)

Importa

nce

of

credence

attrib

ute

s

Co

mp

ara

tive

Ad

va

nta

ge

of S

ma

ll

Fa

rms

Low

High

1

2 4

3

High

Low

Importance of context

Driver Supporter

Export manufacturing

potential, coastal

- √

Mineral economies - √

Agrarian potential, unimodal

land distribution

√ -

Agrarian potential, bimodal

land distribution

√ -

Low agrarian potential,

landlocked

? ?

Pointers for policy

• Need good governance, macro-economic stability, rural roads, research … but also following need attention:

• Follow demand … and look for competitiveness

• Institutional innovation in supply chains

• Farmer organisation

• Rural financial systems

• Encouraging linkages & providing jobs for marginal farmers